Schwartz v. Kujawa
Decision Date | 12 September 2001 |
Docket Number | No. 01-1246,01-1246 |
Citation | 270 F.3d 578 |
Parties | (8th Cir. 2001) IN RE JAMES KUJAWA, INDIVIDUALLY AND DOING BUSINESS AS RESTAURANT BUILDERS, DEBTOR RICHARD E. SCHWARTZ, APPELLANT v. JAMES KUJAWA, APPELLEE Submitted: |
Court | U.S. Court of Appeals — Eighth Circuit |
On Appeal from the United States Bankruptcy Appellate Panel of the Eighth Circuit.
Before Loken, Richard S. Arnold, and Fagg, Circuit Judges.
Richard E. Schwartz appeals a Bankruptcy Appellate Panel decision affirming orders of the Bankruptcy Court directing him to pay attorney's fees of $78,409.83 and an additional punitive monetary sanction of $100,000. We reduce the fee award to $66,656.33. We reverse the monetary sanction. The record contains no support for an imposition so large. The remaining fee award is entirely sufficient to compensate the injured party and deter future misconduct.
The fee award and monetary sanction stem from the filing of an involuntary bankruptcy petition against James Kujawa in December 1989. Before the petition was filed, Mr. Kujawa and his construction company were involved in business relationships with Mr. Schwartz, the appellant in this case and former counsel to Mr. Kujawa, and Paul Ebeling. The souring of these relationships and the protracted litigation over the bankruptcy petition resulted eleven years later in the award of attorneys' fees and a monetary sanction that are now before us for review.
In 1988, Mr. Kujawa was hired by Paul Ebeling to do construction work on the building where Mr. Schwartz shared office space with Mr. Ebeling. Mr. Ebeling owned interests in and managed two companies, Billboard Cafe and Tridon Corp., which were housed in this same office building. Mr. Schwartz was legal counsel to these companies and had a financial interest in them. During the time he worked on the building, Mr. Kujawa retained Mr. Schwartz as counsel in several matters. In the course of this representation, Mr. Schwartz gained financial information about Mr. Kujawa and counseled him on the advisability of filing bankruptcy.
In 1989, disputes arose among the three men. In May 1989, Mr. Kujawa stopped work on the construction projects. In September 1989, Mr. Schwartz withdrew as counsel to Mr. Kujawa. On December 4, 1989, an involuntary bankruptcy petition was filed against Mr. Kujawa. Five creditors filed the bankruptcy petition, alleging due and undisputed debts arising from Mr. Kujawa's construction business. The petition was signed by Sidney Gould, an attorney who had an office in the same building as Mr. Schwartz and Mr. Ebeling. Mr. Schwartz was not an initial party to the bankruptcy, and his exact role in the filing is disputed by the parties. It appears, however, that Mr. Schwartz helped to identify creditors, provided some details about Mr. Kujawa's financial dealings, and may have assisted, either personally or through his legal associate, Mr. Parrot, in preparing the petition.
In answering the petition, Mr. Kujawa alleged that the bankruptcy filing was in bad faith and that his former attorney, Mr. Schwartz, and Mr. Ebeling had organized the creditors to file. Mr. Kujawa stated that the petition's allegations that his wife and daughter were conspiring with him to hide assets were made to embarrass him, and that the bankruptcy's sole purpose was to discredit his business.
A flurry of motions by Mr. Kujawa and his creditors followed. In January 1990, Mr. Kujawa filed a mechanic's lien in a state court against Tridon Corp. and Billboard Cafe to recover money allegedly owed to him from construction work for Mr. Ebeling. In February 1990, Mr. Schwartz filed a motion as counsel for Tridon Corp. and Billboard Cafe to intervene as creditors in the bankruptcy. Finding these claims subject to "numerous factual disputes," the Bankruptcy Court denied intervention. In re Kujawa, 112 B.R. 968, 971 (Bankr. E.D. Mo. 1990). At that time, the Court granted Mr. Kujawa's motion to disqualify Mr. Schwartz as counsel in the involuntary bankruptcy, finding that Mr. Schwartz had gained information from his representation of Mr. Kujawa that was "substantially related to the adverse claims asserted on behalf of Tridon and Billboard." Id. at 972. The Court did permit Mr. Schwartz to participate in the bankruptcy to pursue his own claim against Mr. Kujawa for unpaid legal fees. Mr. Schwartz appealed these decisions, which the District Court affirmed in 1991. In re Kujawa, No. 90-869C(2), slip op. at 8-9 (E.D. Mo., July 15, 1991.)
The involuntary petition was litigated only intermittently after this, and the case sat totally idle for over three years from 1994 to 1997. In this intervening period, the Supreme Court of Missouri undertook an investigation of the propriety of Mr. Schwartz's conduct, at least partially in response to a complaint filed by Mr. Kujawa and his counsel. On June 23, 1995, the Court's appointed master, Supreme Court of Missouri Senior Judge Charles B. Blackmar, issued his report on Mr. Schwartz's conduct. Judge Blackmar found that Mr. Schwartz had violated the Missouri Rules of Professional Conduct by revealing information about Mr. Kujawa's wife and daughter that he had gained in the course of representing Mr. Kujawa. He also determined that Mr. Schwartz behaved improperly in assisting in the drafting of the involuntary petition. He recommended that Mr. Schwartz be reprimanded, stating that he found harsher discipline unnecessary because Mr. Schwartz had practiced since 1989 without further misconduct. The Missouri Supreme Court adopted this recommendation and formally reprimanded Mr. Schwartz.
In 1997, the Bankruptcy Court dismissed the petition pursuant to 11 U.S.C. § 305(a), a provision authorizing bankruptcy courts to abstain from jurisdiction when so doing better serves the interests of creditors and the debtor. The Court noted that although the creditors had met the statutory requirements for an involuntary bankruptcy, this case was "primarily a squabble between Richard E. Schwartz and his former client James Kujawa" and could be resolved more appropriately in a state court. In re Kujawa, No. 89-45120-293, slip op. at 16 (Bankr. E.D. Mo., Oct. 13, 1997). The Court retained limited jurisdiction to resolve the issue of costs, attorneys' fees, actual and punitive damages, and sanctions. Mr. Schwartz and the petitioning creditors appealed this decision to the District Court, which affirmed the abstention. In so doing, the District Court stated that it was "shocked by the conduct" of Mr. Schwartz and remanded to the bankruptcy court for a determination as to an appropriate award of sanctions. In re Kujawa, 224 B.R. 104, 108 (E.D. Mo. 1998).
On June 2, 2000, the Bankruptcy Court held a hearing on fees, damages, and sanctions and ordered Mr. Schwartz to pay Mr. Kujawa $78,409.83 in attorneys' fees. At that time, the Court also directed Mr. Schwartz to provide additional financial information to be used in shaping a monetary sanction. Mr. Schwartz had previously filed a financial statement with the Court, but this information was only partially complete. Mr. Schwartz responded by arguing that because he had not pleaded inability to pay as an affirmative defense, the Court could not require him to submit financial information. On August 14, 2000, the Bankruptcy Court withdrew its order for additional financial information and ordered Mr. Schwartz to pay a monetary sanction of $100,000. On December 21, 2000, the Bankruptcy Appellate Panel for the Eighth Circuit affirmed both the award of fees and the monetary sanction. In re Kujawa, 256 B.R. 598, 618 (8th Cir. B.A.P. 2000).
We review decisions to impose attorneys' fees and monetary sanctions under the abuse-of-discretion standard. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990); Grunewaldt v. Mut. Life Ins. Co. (In re Coones Ranch), 7 F.3d 740, 743 (8th Cir. 1993).1 The Bankruptcy Court recited three bases for its authority to award Mr. Kujawa attorneys' fees: Federal Rule of Bankruptcy Procedure 9011, 11 U.S.C. § 105, and its inherent authority. In ordering the monetary sanction, the Bankruptcy Court relied solely on Rule 9011 (similar to Federal Rule of Civil Procedure 11). On review, the Bankruptcy Appellate Panel held that Rule 9011 and inherent authority were alternative, and equally suitable, bases for both the fee award and the monetary sanction. Regardless of whether the legal authority for imposing these sanctions is Rule 9011 or inherent authority, we believe abuse of discretion is the correct standard. In re Clark, 223 F.3d 859, 862 (8th Cir. 2000) ( ); Blue v. U.S. Dept. of Army, 914 F.2d 525, 539 (4th Cir. 1990), cert. denied, 499 U.S. 959 (1991) ( ).
Mr. Schwartz urges this Court to find that almost every element of the fee award was excessive and should not have been allowed. We have carefully reviewed the fee report of Mr. Kujawa's attorneys and each of Mr. Schwartz's arguments. As a general matter, we agree with the Bankruptcy Court that attorneys' fees were an appropriate sanction in this case, and that most of the fees awarded were properly allowed as being the direct result of Mr. Schwartz's unethical behavior. However, our review did reveal three instances of work for which it is unreasonable to order Mr. Schwartz to pay.
First, we find that it was an abuse of discretion to award fees billed by counsel for time spent speaking with the press. Mr. Kujawa's counsel charged $750 in fees for four hours of conversations with...
To continue reading
Request your trial-
Quigley v. Winter
... ... We have not located ... any cases from our circuit where we have ... foregone a remand under these circumstances. Cf In re Kujawa, 270 F.3d 578, ... (8th Cir.2001); Thomlison v. City of Omaha, 63 F.3d 786 (8th Cir.1995); Rydder v ... Rydder, 49 F.3d 369 (8th Cir.1995); ... ...
-
In re Gorges
...Schwartz v. Kujawa (In re Kujawa ), 256 B.R. 598, 610 (8th Cir. BAP 2000), aff'd in part, rev'd in part, on other grounds, 270 F.3d 578 (8th Cir. 2001) (acknowledging a bankruptcy court's inherent authority to award attorney fees as a sanction for misconduct "despite the existence of proced......
-
In re Kolle
...Code and to prevent abuse of the bankruptcy process, which includes the power to sanction for abuses of process); In re Kujawa , 270 F.3d 578 (8th Cir. 2001) (affirming award of sanctions under Rule 9011 and inherent authority); In re Smith , 212 Fed.Appx. 577, 578 (8th Cir. 2006) (holding ......
-
In re Rivera
...298 (1993)). See also In re Kujawa, 256 B.R. 598, 611-13 (8th Cir. BAP 2000), aff'd in part, rev'd in part and remanded, 270 F.3d 578, 581-82 (8th Cir.2001). Relying solely on Rule 9011, see, e.g., In re Start the Engines, Inc., 219 B.R. 264, 270-71 (Bankr.C.D.Cal.1998); In re Creditors Ser......
-
Rule 1.9 "duties to Former Clients"
...in a $850,000 default judgment. The follow-on discipline case involved an indefinite suspension of both Carey and Danis. D. In re Kujawa, 270 F.3d 578 (8th Cir. 2001) A lawyer, Schwartz, managed to have five courts find that he violated conflict rules in appearing adverse to a former client......